Service tax only in AC restaurants; effective rate 5.6%

New Delhi: Service tax will not be levied on customers dining in restaurants without air conditioning facility or central heating, the Finance Ministry has clarified.

Even the restaurants that have ACs or central heating will levy service tax only on 40% of the total bill amount, the ministry said in a statement.

In case of air-conditioned or air-heated restaurants, "60% of the value is to be deducted from the total amount charged while applying the rate of service tax and tax is to be calculated on the balance 40%", it added.

The clarification follows confusion over the levy and some reports of overcharging after the higher service tax rate of 14% became applicable from June 1.

The earlier service tax rate was 12.36% including the education cess. The effective service tax on eating out in air-conditioned or centrally-heated restaurants will be 5.6% of the food bill compared with 4.94%.

Service tax is chargeable on services provided by restaurants, eating joints or messes, which have the facility of airconditioning or central air heating in any part of the establishment at any time during the year in relation to serving of food or beverages.